Understanding Forms of Business Ownership: A Comprehensive Guide

[Music] good morning students I'm Mrs S from the Department of Business

Administration so we are still on GST I mean ENT 211 that is entrepreneurship and Innovation and we are on lecture

five and the title for the topic for this lecture five is forms of business ownership we are looking at forms of

business what ownership the first thing here is for us to I believe you know what business means you know if you had

to Define what business is we have different definition depending on individual perspective depending on

individual understanding about what business is we can still refer to bus business as an activity that is

performed by an individual on daily basis in order to ear a living and to also make a profit and that is most

important in every in every business activities it CH to make profit and to ear a living we can also refers to it as

a sum total of activities that deals with buying and selling of good and services

and also to contribute to the economic growth and development so looking at these forms of business

ownership as a student you might have the decision you might have made up your mind that whenever you finish from

school after your graduation you want to become an entrepreneur or you want to have your home business you want to

become your Your Own Boss you don't want to walk under someone you don't want to have a white color job and at the same

time you can still have this white color job and at the same time still continue to have your own business

and still be your home B where you put someone in charge of that business so the decision is for individual whether

you want to become an entrepreneur or you want to have a white color job and work on some someone else or you want to

become your home boss so looking at this forms of business ownership you have different forms the different types of

business ownership in case you want to start a business of your own we have different types or different forms that

you can take the different decision that you can take whether you want to join someone in establishing a

business or you want to be your home boss you want to be the manager of that your business

are you getting it so this business ownership what do we mean by this business ownership we can refers to it

as a legal structure under which a business can be organized that is a business that is legally binded a

business that is legally binded by by law or a business that has been registered by law in other know when a

business is being registered that means all other activities that are involved as a corporate you have to be the

business have to be engaging it like paying of tax and the like so when a business is legally binded that is the

business ownership it refers to what a different legal structure under which a business can be organized and each forms

also have its own characteristics the form we are talking about each forms of this business ownership they have

their own unique characteristics they have their own advantage and also disadvantages so these forms of business

ownership it depends on factors that the nature of that business is all in part or the availability of

resources the risk risk that is involved and also the long-term goals now individually that you have have in

starting that business you know when you want to start a business you have a plan you have your schedule you have your

cility study reports and the lik so all these you have to put them into consideration that's why they say each

businesses have his own unique statistics and also the advantages and disadvantages depending on what you want

as an individual under these forms of there are I have

four or five forms of business ownership that we are going to talk about in this lecture five and the first more year

about so proprietorship we are talking about a soul proprietorship we are talking about

an individual a person an individual business that is owned by an individual operate coordinate and manage by one

person so a business own and operated by one individual is what we refers to as what

is so proprietorship and this type of business is common

among among individual even as a student you might still have your own business that you are running that is bringing in

the today giving a day-to-day activities as a student you might have

your own business as well if you if you are good at ear making by the time you move around with your colleagues people

around where you stay you make their help for them they pay you it's part of this business that we are talking about

and we can still refers to it as what a so proprietorship because it is own by you it is managed control by only you

and only you alone and this type of business is also common in our looking at it from our Nigeria environment

looking at it from the Nigerian contest it is very common and who do we refers to as a

proprietor the individual the owner of that business is who be refers to as what a proprietor when you are talking

about for example using primary school for example or nor School you you call the owner of the of the school they call

them the proprietor or the proprietor so that is kind of a so proprietorship business that

I'm talking about here so in looking at it from our Nigerian context we can see that it's a common business it is very

easy to establish because you don't need to start having discussion or looking for someone to join you in that kind of

business is something you already have your plan is something you already have a develop plan you know where to Source

the money you know where to get the money in starting that kind of business to you don't need someone else to assist

or someone to join you in establishing that kind in that business so it's a business that is majorly owned managed

by an individual like let's look at the key features in this so proprietorship the

first one I have here is simple and inexpensive to establish it is very simple and very inexpensive when you

want to start such a business okay somebody that is into liquid so it's a small business with small Capital so it

is easy for you to start such a business because it has a minimal cost that is involved the capital involved is very

minimal very inexpensive then owner has full control of decision

making in this type of business as the owner as the manager you have full charge you have full control over that

activities you are the one in charge you are the one coordinating you are the one bringing out all functions of management

in that business so it is very easy for you to establish you know in and out of that business you know when you are

running profits you know when you are running at loss so you know in and out of that businesses you know what it

takes you have the knowledge you have what it takes establishing that kind of business then profits are tax as

personal income it is your money all right the profit you make at it it is it is it a task as your

personal income when you also make loss it is also t as your personal loss so nobody to you don't bear loss or profit

with anyone you enjoy the profit alone and if it is loss you also enjoy the loss alone as well so part of the

advantages is that it is easy to set up and easy to disolve I can decide to start start making liquid

soap at my own convenience time with the little capital I have and at the same time whether I get tired of that

business or the business is not brooming like I expected so it is easy for me to also quit or to dissolve that kind of

business unlike other forms of business ownership that we have that decision that made by the members but in the case

of sorship you make the decision alone you do everything that involve that business you do everything alone then

owner keeps all profit like I said before all profit belongs to you and if it is a loss as well it also belongs to

you as the owner of that person so if you are making profit it is a gain for you and if it is loss it's also a gain

because no business that does not have his own risk so every business also involve risk taking we also have minimal

regulatory requirements nobody to regulate your activities nobody to give report to nobody to ask you what are the

things you do to give what are the necessary activities that you've done so you have the say you have the final say

about the business you have the decision you make decision on your own about the business

the disadvantages number one here we have unlimited personal liability for debt and obligation unlimited personal

liability for debt and obligation we also have limited access to Capital you know so proprietorship you have limited

access to Capital it is what you have that you use or maybe from your savings what you are able to gather is what you

use for that business so there is no point of you saying you want to go out there you

want to go you know although you can get you know we have something on source of income how you can generate money in

establishing your your business but in the case of so proprietorship there there are limited access to Capital that

you can use in starting such a business then business continuity depends on the owner's LIF span

the continuity of that business depends on the r sport lifespan it depends on the

individual um engagement it depends on when you are still alive then the business will still continue to grow but

the death of the person will also bring an end to that type of business that is about the so

proprietorship the second one year we have partnership even from the world partner that means it has to it involve

two or more people you do what it involve two or more people Partners so that means we are not the only one

running that the Affairs of the of the business we are not the only one in that business taking decision alone but you

have group of people coming together group of people that have the same goals that have the same mindset in starting

that business not just about bringing two or more people together to start a business but they those people must have

the same common goals the same objective that they want to achieve all right so partnership has to do with what a

business owned by two or more individuals who share profits losses and decision

making that is why I said in the case of partnership here you don't you don't take decision alone like the case of

sorship here you take decision as a group you take decision as what as a group not by an individual because every

decision taking is approved by the same set of people of by that group of people so a partnership is attractive to small

businessmen who wish to put their limited resources together to form a common purose all right what that mean

is that it is attractive to a small business man or to a a a group of people who have the same common

goals they have the same objective they have the same vision they have the same Mission they know what they want to

achieve not that a will be saying this is what I want and B will be saying no don't let us go that way this is what I

also want but in the case of mnip everyone have the same gohost everyone have the same objective that we want to

achieve and people gently own the business on an agreement whatever decision they are making is on

agreement that is why we make we say there are group of people two or more people coming together with the same

vision mission gos and objective taking decision together in establishing a business so in this you

know the other one the so proprietorship is managed owned and controlled by a single person but under this partnership

it is own managed and control by group of people I getting is so we also have what

we call a partnership agreement and in this case of partnership agreement the name of the

business the the it must be agreed by those group of people the kind of name you want to give your business maybe T

and Ty company or TI and limited so there must be a a name

given to that business then the location of the business also where will the business be located the environment you

know as a business oriented person when you want to start a business you also make sure that you put into

consideration the location of that business where the business will be established because you can't isolate

yourself to an environment where you know you don't have customer or you will not be able to

get the the Target customer that will be needed for your businesses so you need to also determine the location of that

business as a group we also have the duration of agreement the stimulation of the accounting system in any Financial

year we have the provision for salary and withdraws by partners and also profit and loss sharing that is very

common in Partnership businesses you share profits based on ratio depending on what you are contributing as an

individual if you contribute 30% of capital into such a business that means your profit at the end will be based on

that 30% coming together pulling your resources together to achieve the same

goal is what we refers to as what as partnership let's look at the types of partnership

that we have we have the general partnership and we also have the limited partnership the general partnership is

all Partners who share equal responsibility and liability they are one who has full

powers of participation in the conduct of the partnership everything about the

partnership is generalized everyone have a say everyone take a decision everyone provide a decision or bring about

Innovation about the business and also for the growth of that business so everyone has a full powers of

participation no one is too small in that kind of business everyone they see themselves as an equal person in that

group of businesses or in that group that kind of businesses so a general partnership are Partners who share equal

responsibility and liability they have full power of what of participation in conducting the

partnership businesses and we also have the limited partnership and this is one who has contributed a

certain sum of the partnership but does not normally take any part in the management of the

business what this mean is that at a limited partnership if you are a limited partner that means you

contributed maybe in terms of the amount in terms of capital in starting that business you contributed to that H

business but you don't take part in any management of the business your is just to come what do they need okay this is

my own contribution okay what is on Grand okay this is my what I have but when it comes to decision making when it

comes to part I mean to management of that business such person don't participate that is what we have mean by

this limited partnership it also has its own advantages and also disadvantages where

we have under the advantage advantages share responsibilities and resources they share responsibility and also share

their resources because they P their resources together to achieve the same foral goals so they share responsibility

amongs and likewise they I mean their resources more assets to Capital compared to that of so proprietorship

they have more assets because that is why people said two are better than one by the time a went I mean by the time a

source for an income or source for a capital B also source for another capital and time you pull all those

Capital together it brings about a large Capital it lead to a large Capital which brings

about a very H business plan or a very H business activities compared to that of so propri proprietorship that everything

you are doing is just based on what you have the resources you have the capital you have but in the case of partnership

you have more resources we have more capit that is involved relatively simple to form as well it is also relatively

simple to form just that you have suest people that you have the same goals we have the same vision the same

objective that is why it is relatively simple to also form as well then the disadvantages it has unlimited liability

for General partner potential for conflict between partners and as well profit sharing may not work always feel

Equitable profit sharing may not always feel Equitable and this profit sharing may not always freeable means that it

depends on the contribution you are making it depends on the capital you have in that business so somebody

that that contribute 70% of the capital in starting such a business and you contributed 20% you know when it comes

to profit sharing you cannot have the same amount so that is what it mean by profit sharing may not always feel

Equitable the number three here we have Corporation and this Corporation means a separate legal entity that is owned by

shareholders and managed by directors a separate legal entity owned by shareholders and managed by

director what this corporation mean is that they are a legal entity they are a separate legal entity similar to an

individual it means that Corporation has to do with a business that is establish Maybe by an in investors by shareholders

by a group of shareholders are you getting it so making um which lead to a lead to forming of a

company or a big company so they are they they are separate the company is separated from the owner from an

individual are you getting it it is separated from an individual that's why we say it's a separate legal entity

similar to an individual the company can sue and be sued even if I am the owner of that business so far it is a SE leg

entity it is different from me the business or the company is different from me so I can sue the company and the

company can also sue the owner a corporation is able to buy and sell property Sue and be sued

and also protect his owner from liability are you getting it also protect the owner from liability and the

OWN are who refers to as shareholders the owners are who we refers to as what

shareholders they that means they own a certain stock they own a certain amount a certain stock in that

operation are you getting it so looking at the key features under this

Corporation now raise Capital by by issu issuing of shares they can raise capita by issuing of shares that that is why we

call them a shareholders are you getting it they have a stock they can issue Capital by

shares then the owners who will rep to our shareholders have limited liability they have limited liability

and we also have two types of cooperation we have the one we call S coroporation and we also have the one we

call S corporation the C and S identify the type of Corporation and where it falls

in the IRS tax code of Corporation the IRS means Internal Revenue Services so this determine the type of corporation

that we have whether is C corporation or S corporation the C corporation is subject subjected to double taxation

it is subjected to double taxation that is Corporate and personal level and in this case of C corporation they must pay

tax on it on its income tax must be PID on their incomes but in the case of S corporation

they don't pay tax on their income that is they avoid double taxation income is passed through to share

holders it is the shareholders that pay the the income unlike the case of C corporation that the tax are paid based

on the income generated so let's look at the advantages as well number one is that

limited liability protection there is limited liability protection in this case of

Corporation and also easier to raise large amount of capital just like also so I mean just like the case of

partnership it is easier to raise large amount of capital depending on the caliber of shareholders you are

depending on on the caliber of individual shareholders that you have are you getting it so we also have

Perpetual assistence the such business continue to be in assistence because the kind of people that you are you have as

shareholders depend on the existence of that business then ability to buy and sell assets ability to buy and sell

their shares the LI as Corporation has one tax level cash can be raised through sales

of St just like I said and one or more or one or many owners it's not about I am the owner or we have one or many

owners and business is own legal entity the business is separated from the owner then the disadvantages is that it is

more complex and expensive to establish you know you say something is a group of shareholders so it is more complex and

also expensive to establish extensive Regulatory and Reporting requirements you have to give

reports you have to give regul regulatory activities on what is happening or what you are doing the

activities that is involved then possible double taxation for C corporation from their income they have

to pay um tax un like the case of S corporation that income is passed through to

shareholders and they also avoid double taxation that is number three the first

I said we have S proprietorship the second one we have partnership the third one we have the corporation and the

fourth one here we have limited liability companies we have limited liability

company is just um similar is similar to that of Corporation but what we mean by this

limited liability company is that the corporate form of business organization consists of an association of business

person who have invested their money in a profit making business and they are known as stock

holders they are known as Stocker so what this limited liability company mean is that it's a hybrid

structure combining the benefits of a corporation and a partnership I get

so they are also refers to as Corporation but what they have is that they they are they consist of

Association of business person and they are refers to as stock holders this could be a private or it could be a

private limited company or a public limited company it could be a private

and it could be a public so that is any company you see with L um LLC it refers to as limited

liability company the name of the company contain the world limited liability company and

we also refers to it as LTD that is limited

liability company and a limited liability company combines the tax and management benefit

of the partnership and as well the limited liability of the

corporation then just like I said that they are also refers to as a corporation or they are also known as Corporation so

a limited liability company is a separate legal entity as well just like that of corporate I mean

Corporation they are also capable of buying and selling of assets they also have the ability to Sue and be sued as

well so they also have they exist for a fixed period of time or until a member lives or dies or

there is a terminated action then it braks about the end of

that company so the limited liability for owners are po members

and also they they also pay tax as well in this kind of uh

company just like the advantages and disad disadvantages of the corporation as well is

also it also applies to them that they have limited liability for members they also avoid double

taxation they avoid with double Taxation and it is flexible management structure we have the flexible management

structure and looking at the disadvantages as well it is expensive when it comes to the establishment of

this limited liability company is very expensive to establish compared to that of s proprietorship and partnership then

the rules and regulation vary by state or countries the rules and regulation

varies by state or country the fifth forms of business ownership that we have we also have

Cooperative we have cooperative and you know what we mean by Cooperative is an association of people coming together to

assist to help members in terms of um their businesses to which brings

about the growth of businesses and also development of the businesses so a business owned and operated by group of

individuals for their mutual benefits the essence of this is from benefit just to assist members you have

different kind of people different business owners in that kind of Association you have people who

are a teacher you have someone who is selling Goods in the market you have someone who is a Tor and a fashion

designer and the likes so all these people come together to form this Association which will the first was

cooperative the excess of peace is for mutual benefits to assist one another to expand their businesses when especially

when it comes to financial assistance so and in this case also or

in this forms of business ownership that is the Cooperative each member hold one share in the society and they all have

equal voice all right they have equal voice everyone have a c they take decisions

together they they even do things by voting are you getting it they work hand in hand in managing the Affairs of that

business of that Society so and they also refers to as multipurpose this Cooperative Society is

also refers to as what multi-purpose they multipurpose in nature because they engage in retaining of goods to the

general they engage in assisting the general public or the society as well so each members has an equal sa regardless

of investment regardless of what you are putting into the Cooperative or regardless of the capital you have there

so you have equal sales you have you can you have asset you can vote and be voted for then profits are distributed among

members profit are share among members as well so advantages is that Democratic decision making all right we have the

Democratic decision making you take decision together you take decision as a group as a society they also focus on M

Ben benefits which is the key um key aspect of this Cooperative they focus on moal benefit

that is by assisting one another we also have members share risk and reward right if there is risk they share it amongs

and if there is reward they also share the reward among themsel so that is all about the forms

of business ownership we talk about the so proprietorship the partnership the corporation we have the limited

liability company and we also have the Cooperative Society thank you for listening

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